A growing number of North Texas default filings actually have nothing to do with unemployed or underwater borrowers, although some analysts mistakenly think they do.
These hitherto airbrushed defaulters are most likely facing the same financial problems as distressed American households, except this time they are behind with payments to homeowner associations or home equity loan holders.
Although these filings currently account for less than 10% of the total, the proportion is on the rise according to a leading industry spokesman. The increase in filings by homeowners associations is the more significant of the two – especially as five years ago they scarcely happened at all.
It’s not the same today. Thousands of North Texans have lost their jobs, and in more than a few instances they are defaulting on their homeowners association dues too, not to mention unpaid fines and special assessments. Whereas the associations were previously patient with their members, they have been getting harder lately as debts stack up.
But things are not that simple for the associations either. A homeowner’s association foreclosure leaves any outstanding mortgage intact, meaning that the collective would also have to negotiate its way through this minefield with the lender. Besides this, the defaulter is entitled to six months grace to repay and redeem ownership. This may explain why this type of foreclosure has previously been unpopular.
A practical example
An Allen resident who may not be named, recently fell behind with housing association fees to the tune of $1,000 and saw his property posted for forced sale. He told me that he was shocked by the association’s power, especially as he had advised them that he was planning to make good, and had posted his cheque before he received the notice.
The association’s attorney stressed that his client had no interest in owning the property. “We’ll back off,” he told me, “as soon as the gentleman makes good.”
What’s the background to this anomaly?
Anomaly it certainly is. “The Texas law that allows foreclosure against unpaid neighborhood dues is unusual, to say the least,” said Beanie Adolph of Texas Homeowners for HOA Reform Inc. “The horrible truth about HOA foreclosures is that the HOA has no investment or expenditure in the home. This is debt created out of thin air – HOA fines, charges, and attorney fees.”
These developments have reached the attention of Texas lawmakers – just this week a House Panel heard evidence in Austin concerning “egregious” practices by some associations.
“This has been an issue for many HOAs and Condo Associations, especially in areas where the housing market has taken the biggest hit – Florida, Southern California and parts of Arizona and Nevada,” said Frank Rathbun, Vice President of Communications for the Virginia-based Community Associations Institute. “Of course, the recession hasn’t helped.”
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